Is this the end of private prisons?

The footage is grainy, but the message is unmistakable. HMP Northumberland, one of Britain’s biggest jails, has descended into chaos, with failing alarms, prisoners calling the shots and a troubling drug problem sweeping its corridors.

Exposed by an undercover BBC Panorama reporter, the prison’s individual struggles were brought to light in a documentary last week. They follow months of coverage of the country’s struggling jail system, most notably the riot at HMP Birmingham at the end of last year that was described as the worst since the turmoil at Strangeways in 1990.

Times are clearly tough. In 2015, the chief inspector of prisons said jails were in their worst state for a decade, while David Cameron used one of his last domestic policy speeches as prime minister to say that “current levels of prison violence, drug-taking and self-harm should shame us all”.

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As ever, the target of many people’s frustrations are private companies. HMP Northumberland is run by French firm Sodexo, while HMP Birmingham is operated by security company G4S. A local MP has called for Sodexo’s contract to be terminated in the light of last week’s news, while G4S has long been battling to save its reputation after a string of scandals.

Whether private prisons should exist in the UK is an argument that shows no sign of being locked up, but with so much of the discourse obscured by ideological and political froth, a grasp of the actual nature of the industry itself can easily be lost.

There are 14 privately managed prisons in England and Wales, shared between three companies. Five are in the hands of G4S, four are operated by Sodexo, and the other five are under the control of outsourcing company Serco. In total, private institutions make up around 15pc of the country’s prisons, with the rest managed by the National Offender Management Service (NOMS).

Undercover footage filed by BBC's Panorama of Northumberland Prison run by Sodexo. Here, an inmate is high on SpiceCredit:
BBC

According to the Institute for Government think-tank, the combined value of private prisons contracts is around £4bn. It is a developed market which has been in place since the Criminal Justice Act 1991 was enacted, allowing the management of any prison to be contracted out.

Private prisons operate in an unusual framework. They exist within the national system and are subject to all the same pressures and problems as public sector prisons, while they must also move within the constraints of “very tight” contracts, says Dr Simon Bastow, an expert and author on prison crowding.

As an example, when Sodexo was awarded the 15-year contract to run HMP Northumberland, worth around £250m, the company said it would deliver savings of almost £130m.

“Right from the start these contracts are incredibly tight and the directors that run them are absolutely up against it to make it work,” Bastow says.

Many of these directors have crossed over from the public sector, and are vastly experienced. The best of them, Bastow adds, stay in position for years, which contrasts sharply with the more turbulent public sector, where changes in management are commonplace. As with any business, though, their positions depend on profits. As a rule of thumb, private prison contracts are set up to deliver profit margins of around 8pc to 10pc.

“It is a business that has produced not very large returns, but respectable and, I would say, fair returns,” says Rupert Soames, chief executive of Serco.

Private prisons operate in an unusual framework. They exist within the national system and are subject to all the same pressures and problems as public sector prisons, while they must also move within the constraints of “very tight” contracts

Bastow adds that, on the whole, “the successful ones do deliver their 8pc”.

“There is a fair amount of predictability on the profitability of these contracts, because there has to be,” he adds. “If there isn’t, directors get shifted around and the companies themselves make internal changes.

“But they are good at it. This is a 25-year-old market, and they know how much it costs to run a prison, broadly speaking.”

However, scandals such as riots are costly for the balance sheet and, just as importantly, to company reputations.

Liz Truss, the Justice Secretary, has said G4S will have to pay for the special Tornado units sent in to HMP Birmingham during last year’s riots. There have been a series of other fines, further souring public opinion against a company that was already scowled upon for its failure to provide enough staff for the London Olympics, resulting in army reinforcements being parachuted in.

As another example, an electronic tagging scandal that engulfed both Serco and G4S in 2013 led to the abandonment of plans to privatise three prisons in South Yorkshire for which Serco was the leading bidder.

Also at play is the rise in prison populations, often cited as one of the key causes of the current troubles faced by the system. In 1980, that population was little more than 40,000. In 2015, it was 85,000.

Another factor is benchmarking, which has seen a tightening of financial pressures on public and private prisons in an attempt to, in the words of Bastow, “pare down prison services to a ‘lowest common denominator’ standard”.

This has resulted in some private prisons effectively having to under-perform to reach a standard level.

The rise in prison populations is often cited as one of the key causes of the current troubles faced by the system. In 1980, that population was little more than 40,000. In 2015, it was 85,000

“Many would say that [benchmarking] has been the root of many of the problems that are now in prisons,” Soames says. “They got the numbers down but without doing all the other changes that private sector operators do, which is changing shift patterns and introducing a lot of IT and automation to allow them to operate with lower numbers.”

It would be easy to think the reputational damage suffered by these companies, which enjoy revenues in the billions, could be easily shrugged off. But the industry’s future is looking increasingly shaky.

In the early 1990s, it was planned for around 25pc of prisons to be under private management.

That remains a long way off, and there are fears that the market is beginning to close up.

The about-turn on the three South Yorkshire prisons was a blow, as was the fact that HMP Berwyn, a new prison in Wrexham, has been handed over to the public sector. G4S was also stripped of its contract running the Wolds prison in Yorkshire, which it had been operating since 1992, after it was taken back into public sector control when the contract came to an end.

“There is a slowing down of the whole programme,” says Bastow. “There have also been some huge screw-ups that have politically turned ministers off. They [the companies] have been punished for their misdemeanours.”

There has also been the influence of the Prison Officers Association (POA), whose presence, Bastow says, deterred ministers from carrying through threats of market testing public prisons with a view to transferring them to the private sector.

“Up until 2011 no prisons were handed over as a result of market testing, even though there were at least 20 attempts to market test,” he says. “Throughout the Labour years there was a real worry about upsetting the POA.”

Private companies are watching intently to see what happens next. Many contracts for the first private prisons are now coming up for completion, such as G4S-run HMP Altcourse and HMP Parc.

In November last year, the Government unveiled plans for £1.3bn investment in new prisons over five years If those do not present themselves as future contracts, one industry insider says, the sector will “atrophy and die”.

The door seems to be slowly closing and there is a nervous wait to see if it will be locked shut.